India budget: Modi announces universal basic income for farmers in bid for rural vote ahead of election

Opposition accuses ruling BJP of 'tinkering around the edges' as economy falters

The race towards the April-May elections is increasingly tightening (AFP/Getty)

The Indian government has announced the introduction of a basic income for poor farmers, as part of a budget full of expensive vote-winning policies clearly geared towards a general election in just a few months time.

The handouts will affect 620 million people, including millions of smallholding farmers who will be paid 6,000 rupees (£64) a year. The measures are a direct response to recent unrest among rural voters and weak state election results for Narendra Modi’s ruling Bharatiya Janata Party (BJP).

There were pre-election gifts too for urban middle class voters, who will see the threshold for income tax doubled from 250,000 to 500,000 rupees (£5,400). A pension scheme for some 100 million workers in the vast informal labour sector was also announced.

“This was an out-and-out election budget,” economist Vivek Kaul told The Independent. “We’re talking about handouts for more than half of all Indians. The prime minister is looking to put money into pockets across the cross-section of the population, and to some extent people are bound to be impressed.”

The budget was formally presented to parliament by acting finance minister Piyush Goyal, with his superior Arun Jaitley receiving medical treatment in the US.

But if there were any doubts that this was entirely Mr Modi’s programme, there were extraordinary scenes when the climax of Mr Goyal’s address was greeted by BJP members of the house thumping their desks and chanting: “Modi, Modi, Modi.”

India goes to the polls in April and May in an election that has tightened enormously in recent months, as Mr Modi’s seeming invincibility has been repeatedly dented. In December, the BJP suffered bad losses in three key bellwether states, and recent opinion polls suggest they could lose their majority on the national stage.

Friday’s proceedings should technically only have been an interim budget, setting out plans for government spending up to the end of May.

Clearly, that was not the case. The payout for farmers alone was backdated so as to cover the 12 months to 1 December 2019 and, whoever wins in the spring, it would be political suicide to then take away 6,000 rupees from more than 600 million people.

Earlier this week, the main opposition Congress party pre-empted what was dubbed here a “Santa Claus budget” by vowing to introduce a universal basic income for the poor if it wins the election.

Pundits described the stance of the two parties collectively as “competitive populism”, and there were some concerns that the budget would completely throw caution to the wind and jeopardise commitments to tackle the deficit.

In the end, that was not the case. The combined cost to the exchequer of the two big-ticket handouts was around 950bn rupees (£10.2bn), which the government said would be paid for by improved tax collection and only some increased borrowing.

Mr Goyal said the budget would put the fiscal deficit for the year to 31 March at 3.4 per cent, just slightly higher than the targeted 3.3 per cent. He set the deficit target at a continued 3.4 per cent for 2019/20 but projected it would drop to 3 per cent in subsequent years.

Moody’s, the credit rating agency, issued a warning over the slip, saying the budget “doesn't bode well for [India’s] medium-term fiscal consolidation targets”, but did not change its overall stance on the country’s “stable” outlook.

And Gareth Price, senior research fellow for the Chatham House think tank, said a policy that put money straight into the pockets of poor farmers could provide an effective economic stimulus.

“There’s a growing acceptance that the subsidies system is open to corruption, so giving money directly to the poorest people makes a lot of sense,” he said. “It could also make a big difference to small farmers – 6,000 rupees is quite a lot. But it will succeed or fail based on the implementation.”

Whether Mr Modi’s promises can win votes will depend on how much the public trusts him to deliver. Friday’s budget was nearly overshadowed by a report on leaked jobs figures, showing unemployment at a 45-year high. Jobs creation was one of the BJP’s key pledges when it swept to power in 2014.

Sure enough, the use of the word “jobs” was conspicuous by its absence during Mr Goyal’s more than 90-minute address to parliament.

Congress spokesperson Salman Soz said: “The real issue here is that, as the unemployment report said yesterday, we are in a lot of trouble. There is a crisis and, instead of looking to expand economic activity in a massive way, this is tinkering around the edges.”

Mr Kaul said he was surprised the government did not at least acknowledge the issue of jobs or, in a direct way, that of agricultural distress. In a country where anti-incumbency is a powerful driving force, it risks creating a credibility issue for the BJP.

“You have to take into account that in 2014, Mr Modi sold a lot of hope,” Mr Kaul said. “And he hasn’t been able to deliver on that. This time people won’t buy into him lock, stock and barrel like they did in 2014.

“But anywhere in the world, a freebie will have an impact. It’s just difficult to see how much of what they have said they will be able to implement in the next two months.”